Turnaround Investing Blog

George Putnam, one of the country's leading turnaround and distressed investing professionals, shares his timely insight on the economy and turnaround investing opportunities.

Wall Street 101: A Brief Overview of Stock Trading

March 9, 2014

Like most publications, The Turnaround Letter has always made a point of indicating the exchange or market on which each of our purchase recommendations trades. This system dates back to the pre-Internet days when we all looked up stock market quotes in the newspaper—a process that now seems rather archaic! Although these specifics are less significant with today’s technology and easy access to real-time information, our readers have told us they still like to see those details. This got me thinking that many investors may not know much background about the U.S. stock exchange and market system. As with anything, a general understanding of that history can offer some interesting insight.

According to the Library of Congress, the Philadelphia Stock Exchange, established in 1790, was the first United States exchange. The American Stock Exchange (AMEX) came shortly thereafter and was known as the “Curb Exchange” until its official name change in 1953. In 1998, AMEX merged with the National Association of Securities Dealers (NASD) to form the NASDAQ-AMEX Market Group. AMEX continued to remain an active exchange until its 2008 acquisition by NYSE. By 2009, the exchanges were fully integrated and known as NYSE-AMEX. The New York Stock Exchange (NYSE) merged with the Archipelago Exchange in 2005, reorganizing as a publicly-traded, for-profit entity. NYSE is operated by NYSE Euronext—which was formed as a result of NYSE’s 2007 merger with Euronext. NYSE boasts the title of first trans-Atlantic exchange.

NASDAQ—founded by NASD’s President, Gordon Macklin—began trading in February 1971 as the world’s first electronic stock market. In 2000, NASDAQ’s membership voted to restructure and spin off NASDAQ into a shareholder-owned, for-profit entity. New York City-based NYSE and NASDAQ are the leading exchanges for both the United States and worldwide. When ranked by market capitalization, NYSE, also known as the “big board,” is the largest international exchange by a significant margin, and NASDAQ is second-largest. The World Federation of Exchanges’ most recent data reveals that NYSE’s $15,913,258 million market capitalization more than triples NASDAQ’s $5,281,626 million. After NYSE and NASDAQ, the Japan Exchange Group - Tokyo, London SE Group and NYSE Euronext (Europe) round out the top-five market capitalizations. Worldwide, there are more than 100 stock exchanges, with the United States hosting the largest number (12); and each of these has its own unique reputation, listing requirements and related fees.

NYSE companies are sometimes perceived to be more stable and established, with listings that include many highly-recognizable blue chip firms and industrials. NASDAQ is generally known for its high-tech focus. These distinctions have become markedly less pronounced lately, however, as NYSE recently attracted some notable tech-heavy IPOs—namely Twitter, Pandora and LinkedIn. You may have also heard about Over the Counter (OTC) decentralized markets, which are less transparent and governed with fewer regulations than the NYSE and NASDAQ exchanges. OTC markets do not impose listing standards and are used primarily to trade bonds, currencies, derivatives, etc. This is distinct from Pink Sheets, a privately-owned company that offers an Internet-based, real-time quotation service for OTC equities and bonds. Stocks that trade on the Pink Sheets are easily identified by their “.PK” marker.

It should be noted that The Turnaround Letter does not recommend stocks listed on the OTC Bulletin Board or Pink Sheets because their liquidity is insufficient: We choose not to include risky start-ups, new issues, “penny” mining stocks or speculative options or futures in our portfolio, which emphasizes long-term holdings and steers investors away from volatile and unpredictable stocks.

Identify & Profit from Distressed Investing

Turnaround Investing Blog

At best, the broad stock market’s 15.8% drop since its peak only three months ago on September 20 has been disconcerting. The deeper 23% plunge in small cap stocks, as measured by the Russell 2000 index: startling. For the weakest 9% of S&P500 stocks – often those with some type of unfavorable macro exposure – their average loss of 40% in such a brief time has been simply jaw-dropping.
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EV/EBITDA: What Is It & Why Are We Using It More?

In reading recent editions of The Turnaround Letter, you have probably noticed that we are increasingly using EV/EBITDA as a valuation measure, rather than the better-known price/earnings multiple. We thought it might be useful to describe this measure and why we like it.

Turnaround Letter Stock Pick Named Top Performer of 2017

This Forbeswrite-up follows up on the recent Top Stock Tips report--naming The Turnaround Letter's Crocs recommendation the top performer of 2017: With 90% gains, CROX beat out 100 other investment ideas included in the report; and the stock continues to have value investing appeal, according to Putnam.

George notes, "We see additional upside for the stock in 2018 as management's efforts continue to bear fruit, though the gains will likely be more muted than we saw in 2017."